Stock Analysis

What You Can Learn From Ouro Fino Saúde Animal Participações S.A.'s (BVMF:OFSA3) P/E

BOVESPA:OFSA3
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Ouro Fino Saúde Animal Participações S.A.'s (BVMF:OFSA3) price-to-earnings (or "P/E") ratio of 33.4x might make it look like a strong sell right now compared to the market in Brazil, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

While the market has experienced earnings growth lately, Ouro Fino Saúde Animal Participações' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Ouro Fino Saúde Animal Participações

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BOVESPA:OFSA3 Price Based on Past Earnings August 9th 2020
Want the full picture on analyst estimates for the company? Then our free report on Ouro Fino Saúde Animal Participações will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Ouro Fino Saúde Animal Participações' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 17%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 31% per annum as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 15% per year growth forecast for the broader market.

In light of this, it's understandable that Ouro Fino Saúde Animal Participações' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Ouro Fino Saúde Animal Participações' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Ouro Fino Saúde Animal Participações that you should be aware of.

You might be able to find a better investment than Ouro Fino Saúde Animal Participações. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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